M2 Property Invest Ltd, Re

This was an application under Regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007 for the court's approval of the completion of a cross-border merger pursuant to Directive 2005/56/EC. The court considered whether it could or should inquire into the validity of pre-merger certificates issued by foreign authorities and whether it should scrutinise the likely effect of the merger on creditors of the foreign transferor company.

The judge concluded that the two-stage mechanism in the Directive contemplates national authorities scrutinising pre-merger formalities in relation to each merging company and that, at the second stage under Regulation 16, the English court may ordinarily rely on pre-merger certificates. The court held that a clerk-issued Polish pre-merger certificate was not a "judgment" for the purposes of the Recast Judgments Regulation and that, even if the court could investigate the factual basis of a foreign pre-merger certificate, the inaccuracies in the papers would not have prevented the foreign authorities issuing their certificates in this case.

Because the pre-merger requirements in the Regulations had been satisfied, and the known creditors of the Polish transferor had been notified and did not object, the court approved the completion of the merger and fixed the date on which its consequences would take effect.

Background and nature of the application.

The application sought court approval under Regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007 for the absorption of Vendor Wind Service Sp. Z.o.o. (a Polish company) by its English parent, M2 Property Invest Limited. The Directive 2005/56/EC and the Regulations set out a two-stage scrutiny: pre-merger certification in respect of each merging company and subsequent approval of completion by the authority for the transferee company.

Facts and procedural posture.

• M2 was the English transferee; Vendor Wind the Polish transferor. Articles 7, 10(2), 11 and Regulation 16 were central.
• Both companies obtained pre-merger certificates: from the English registrar under Regulation 6 and from the Gdansk-North District Court in Poland.
• Initial witness evidence suggested Vendor Wind had suspended trading and that the accounts annexed to the Terms of Merger dated to 2016. Further evidence later revealed Vendor Wind had resumed trading, altered its asset and liability position and acquired substantial new trade creditors by 2017.
• There were inconsistencies and inaccuracies in the material before the Polish court at the time of its pre-merger certificate.

Issues framed by the court.

• Whether the English court may investigate or look behind a foreign pre-merger certificate obtained under Article 10(2) of the Directive, including whether such a certificate is a "judgment" within the meaning of the Recast Judgments Regulation (EC) No. 1215/2012.
• The breadth of the court's discretionary task under Regulation 16: whether the court must examine the interests of creditors of the foreign transferor, or may rely on the domestic creditor-protection procedures applied at the pre-merger stage in the transferor's Member State.

Court's reasoning and decision.

• The court held that the Polish pre-merger certificate issued by the court clerk was not a "judgment" for purposes of the Recast Judgments Regulation, because it did not involve the court resolving disputes between parties but was a verification of formal compliance.
• Although the phrase "conclusively attesting" in Article 10(2) could be read to require wide recognition of pre-merger certificates at the second stage, the judge did not need to resolve the issue definitively because he concluded on the facts that the identified inaccuracies would not have led the issuing authorities to refuse certification.
• On the proper scope of Regulation 16 the court recognised three possible approaches but favoured that the Directive's two-stage mechanism contemplates each Member State protecting creditors under its national law at the pre-merger stage and that the English court may in general proceed on the basis of the pre-merger certificates. The court accepted, however, that in some cases closer inquiry might be necessary.
• Finally, because the pre-merger formalities had been complied with and the identified current creditors of Vendor Wind had been notified and did not object, the court approved the merger and fixed 1 January 2018 as the effective date (no less than 21 days after the order as required by Regulation 16(2)).

The court granted an order approving the completion of the cross-border merger under Regulation 16. The judge held that the Polish pre-merger certificate was not a judgment within the meaning of the Recast Judgments Regulation and that, even if the court could inquire into the factual basis of foreign pre-merger certificates, the inaccuracies in the materials would not have led to refusal of certification. The court further recognised that creditor protection is principally a matter for the national law of each merging company and, on the facts (including that known Polish creditors had been notified and did not object), approved the merger and fixed 1 January 2018 as the effective date.